The Paradox of Prosperity at America’s Universities

As they churn out the talent and technology that drive economic growth, universities also shape deepening urban inequality.

Leading research universities have played a central role in America’s dominance of high-tech sector after high-tech sector. From software to biotech, the technology and talent streaming out of these universities have been crucial to the startups that have powered innovation and local economic growth in many regions.

Silicon Valley is unimaginable without Stanford University. The innovation ecosystem of Boston and Cambridge turns on MIT. And research universities have played a key role in reviving cities and neighborhoods hollowed out by crime and deindustrialization. Pittsburgh’s revival, for instance, has been spurred by technologies pioneered at Carnegie Mellon, such as robotics and autonomous vehicles.

But even as universities have driven so much innovation and economic growth, they have also played a role in increasing urban inequality and economic segregation. It’s not just happening in the expensive bedroom communities surrounding universities like Stanford or the gentrifying neighborhoods near New York University, either. As I point out in The New Urban Crisis, college towns like Austin and Boulder also have extraordinarily high levels of inequality and economic segregation.

This dual role of the university is the focus of a new study that I co-authored with a colleague at the University of Toronto’s Rotman School, Ruben Gaetani. The study, which is forthcoming in a special issue of Managerial and Decision Economics, takes a close empirical look at the dual role of the university in innovation and inequality across U.S. cities and metropolitan areas.

Gaetani and I look at the effects of more than 300 leading U.S. research universities on innovation and economic segregation since the year 2000. We consider the role of these universities using detailed data on innovations (based on patents) and venture-capital-financed startup companies, and on income and occupational class. Our data enable us to look at the paradox of prosperity that universities bring within as well as across metros.

The university and innovation

Universities play key roles in innovation (based on patents) and local entrepreneurship (based on startups). Metropolitan areas with a research university have 62 percent more patenting (that is, patents registered within the metropolitan area) than those that do not. This association is even stronger in metros with at least one research university that ranks among the world’s 100 leading universities, with about 121 percent more patenting. Metros with universities that are highly ranked in science and engineering—particularly medicine, computer science, and electronics—tend to produce even more patents.

But university-driven innovation is highly uneven. The San Francisco metro is far and away the leader, generating 6.9 patents per 100 students. Baltimore is next, with 3.3 patents per 100 students, followed by Boston (2.3), Durham–Chapel Hill (2.3), and Los Angeles (2.1)—all noted tech hubs. Conversely the metros with the lowest rates of university innovation generated just 0.1 patents per 100 students.

The correlation between number of patents and the presence of a research university, or a research university in the top 100 (Ruben Gaetani)

But patents can be picked up and used anywhere; they do not necessarily translate into more local innovation. Indeed, there is even greater geographic variation in how university knowledge is picked up and used by local industry.

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To get at this, we look at the rate at which local academic papers are cited in local patents. In the Boston–Cambridge metro, for example, local patents cite local academic research at a rate of 7.6 citations per 100 local academic papers. San Diego comes next, with a rate of 6.0, followed by San Francisco (3.6) and Austin (3.0). On the other hand, in the metros that use the lowest levels of local knowledge, the rate is just 0.05.

Interestingly, we find a strong correlation between local and non-local use of university knowledge. In other words, universities in some metros are much better at generating technologically useful knowledge than others, not just for their own communities, but for companies and inventors nationwide.

There is also considerable geographic variation in how universities contribute to venture-capital-backed startups. Metros that are home to at least one research university have nearly 50 percent more venture-capital investment in startups than those that have none. And metros with universities that are ranked among the 50 leading universities in the world have 200 percent more venture-capital investment, even after controlling for population.

Look at the maps below, which show the clustering of VC investment (darker shares of blue identify higher levels of investment) around research universities (the red star) across selected metro areas. You can see the concentration of investment around Stanford in the Bay Area; around the University of Texas in Austin; and around Carnegie Mellon and the University of Pittsburgh in Pittsburgh.

Concentration of VC investment and the location of a major research university (Gaetani)

Physical proximity is indeed a key factor in the connection between universities and high-tech startups. Doubling the distance from a university ranked in the top 100 in the world decreases the amount of local venture-capital investment by about 45 percent.

The university and urban inequality

At the same time that leading universities help spur local innovation and startups—and perhaps because they do—they also contribute to increased local inequality. Metros with at least one research university have considerably higher levels of income segregation than those with none. And income segregation is roughly 10 percent higher in metros with a research university that is ranked among the top 100 in the world.

We see a similar pattern when we look at occupational segregation—the segregation of highly paid knowledge workers from lower-wage, blue-collar industrial and service workers. Occupational segregation is roughly 12 percent higher in metros with a major research university that is ranked among the top 100 globally.

Universities are, by definition, magnets for knowledge workers. They have long attracted faculty and researchers to live nearby. More recently they have served as magnets for knowledge workers and members of the creative class who are not associated with the university—a consequence of the amenities and quality of place they provide.

The maps below show the concentration of knowledge workers (darker shades of blue indicate a higher percentage change in the number of knowledge workers) around major research universities (again indicated by a red star). Note the substantially higher concentrations of advantaged knowledge workers around MIT and Harvard in Cambridge, around the University of Washington in Seattle, around UCLA, USC, and Caltech in L.A., and around Johns Hopkins in Baltimore.

Change in the proportion of knowledge workers in relation to major research universities (Gaetani)

Many neighborhoods that house or are close to major universities, like Westwood around UCLA or La Jolla around the University of California, San Diego, have long been affluent communities. That said, ZIP codes that are adjacent to major research universities have seen significant inflows of knowledge workers between 1990 and 2010. Indeed, doubling a ZIP code’s distance from a top 100 research university leads to a 1.1 percentage point decline in the change in knowledge workers over that period.

The increasing concentration of knowledge workers in and around major universities has, in effect, pushed out less advantaged residents, leading to rising segregation over time. This is magnified by the fact that many urban universities have been located in and around distressed urban neighborhoods. As knowledge workers have increasingly flowed back to these areas, such as the neighborhoods surrounding NYU, USC, Johns Hopkins, and other institutions, these divides have become magnified.

Universities and inclusive prosperity

Universities have played a key role in propelling innovation, in generating powerful high-tech companies, and in galvanizing the urban revitalization of many cities and urban neighborhoods. It is now time for universities, as signature examples of urban anchor institutions—institutions that literally “anchor” their neighborhoods and communities—to turn their attention to generating more inclusive and broadly shared prosperity. They can lead in this effort and encourage other anchor institutions, including tech companies and real estate developers, to join them.

Many research universities provide housing assistance to enable their faculty to live in expensive, superstar cities; they can extend this to their own service workers and neighborhood residents. They can invest in shared community amenities and public spaces. They can increase the pay for and upgrade low-wage service work on and around campus. They can forge community benefits agreements that help ensure more broadly shared prosperity for workers and residents. Universities must commit to using their own talent base to conduct research that identifies the most effective strategies for forging more inclusive prosperity.

Ultimately, as a key institution of knowledge-based urban capitalism, the research university both reflects and contributes to the core contradiction that sits at the heart of the New Urban Crisis. By drawing in talent and clustering innovative activities, universities also exacerbate the divisions that increasingly vex our cities and communities. Instead of just reinforcing winner-take-all urbanism, it’s time for them to lead the shift to a more inclusive urbanism for all.

About the Author

Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate and visiting fellow at Florida International University.